When the account beneficiary is ready for college your Bright Directions account can be used for a wide range of qualified expenses at eligible institutions.1
- The following expenses must be required for enrollment or attendance of a designated beneficiary at an eligible postsecondary school.
- Tuition and fees.
- Books, supplies, and equipment.
- Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible post-secondary school.
- Expenses for room and board must be incurred by students who are enrolled at least half-time (defined below).The expense for room and board qualifies only to the extent that it isn’t more than the greater of the following two amounts.
- The allowance for room and board, as determined by the school, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
- The actual amount charged if the student is residing in housing owned or operated by the school.
You may need to contact the eligible educational institution for qualified room and board costs.
- The purchase of computer or peripheral equipment, computer software, or Internet access and related services if it’s to be used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible postsecondary school. (This doesn’t include expenses for computer software for sports, games, or hobbies unless the software is predominantly educational in nature.)
Half-time student. A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled.
K-12 Expenses. Federal law, but not Illinois law, permits an aggregate of up to $10,000 during a taxable year from all 529 qualified tuition programs for a Beneficiary to be used for tuition or connection with the Beneficiary’s enrollment or attendance at an elementary or secondary public, private or religious school. Such a distribution would be an Illinois Nonqualified Withdrawal and the amount of any deduction previously taken for Illinois income tax purposes (or a portion of such amount) would be added back to Illinois taxable income. Consult with your tax or legal advisor before making such distributions.
The earnings portion of a nonqualified withdrawal may be subject to federal and state income taxes, a 10 percent federal tax penalty, and Illinois may recapture prior tax deduction benefits. Please consult your tax advisor.
Certain educational institutions located outside the United States also participate in the U.S. Department of Education’s Federal Student Aid (FSA) programs.
Payments to account owners, beneficiaries, and bank accounts
An account owner or custodian (under a state UGMA/UTMA) may request a withdrawal online or by downloading and submitting the Withdrawal Request Form.
Be sure to plan ahead when requesting a withdrawal. Generally, if a request is received in good order on a business day prior to the close of the markets (typically 3 p.m., central time), the investments will be sold at that day’s closing prices, and a check will be mailed the following business day. Please plan ahead and allow sufficient mail time. For withdrawals payable to the account owner’s bank account, please allow several business days for your bank to process the payment and credit your account.
Payments to eligible institutions
Bright Directions can also make payments directly to a college or university. Please note that some institutions may take up to three to seven business days to post payments to a student account. Please allow sufficient time for mail time and processing by the school.
Taxable Portion of a Distribution
The part of a distribution representing the amount paid or contributed to a qualified tuition program doesn’t have to be included as income. This is a return of the investment in the plan. The designated beneficiary generally doesn’t have to include as income any earnings distributed from a qualified tuition program if the total distribution is less than or equal to adjusted qualified education expenses. To determine if your total distributions for the year are more or less than the amount of qualified education expenses, you must compare the total of all qualified tuition program distributions for the tax year to the adjusted qualified education expenses. Adjusted qualified education expenses are the total qualified education expenses reduced by any tax-free educational assistance. Tax-free educational assistance includes: the tax-free portion of scholarships and fellowship grants; veterans’ educational assistance; the tax-free portion of Pell grants; employer-provided educational assistance; and any other tax-free payments (other than gifts or inheritances) received as educational assistance.
Coordination With American Opportunity and Lifetime Learning Credits
An American Opportunity or Lifetime Learning Credit can be claimed in the same year the beneficiary takes a tax-free distribution from a qualified tuition program, as long as the same expenses aren’t used for both benefits. This means that after the beneficiary reduces qualified education expenses using tax-free educational assistance, he or she must further reduce them by the expenses taken into account in determining the credit.
Coordination With Coverdell Education Savings Account Distributions
If a designated beneficiary receives distributions from both a qualified tuition program and a Coverdell Education Savings Account in the same year, and the total of these distributions are more than the beneficiary’s adjusted qualified higher education expenses, the expenses must be allocated between the distributions. For purposes of this allocation, disregard any qualified elementary and secondary education expenses.
Coordination With Tuition and Fees Deduction
A tuition and fees deduction can be claimed in the same year the beneficiary takes a tax-free distribution from a qualified tuition program as long as the same expenses aren’t used for both benefits.